2005 Thomson/South-Western
Inventory Models
2005 Thomson/South-Western
Inventory Costs
2005 Thomson/South-Western
Deterministic Models
2005 Thomson/South-Western
2005 Thomson/South-Western
Assumptions
Demand is constant throughout the year at
D items per year.
Ordering cost is $Co per order.
Holding cost is $Ch per item in inventory per
year.
Purchase cost per unit is constant (no
quantity discount).
Delivery time (lead time) is constant.
Planned shortages are not permitted.
2005 Thomson/South-Western
Formulas
Q*=
2DCo/Ch
D/ Q *
Q */D
2005 Thomson/South-Western
2005 Thomson/South-Western
2005 Thomson/South-Western
2005 Thomson/South-Western
10
2(500)(80)/10 =
2005 Thomson/South-Western
11
2005 Thomson/South-Western
12
2005 Thomson/South-Western
13
2005 Thomson/South-Western
14
B
C
=SQRT(2*B3*B4/(B5*B6/100))
=(C11/B10-1)*100
=B5/100*B6*B10/2
=B4*B3/B10
=B14+B15
=B5/100*B6*C11/2
=B4*B3/C11
=C14+C15
=(C16/B16-1)*100
=B10
=B10/2
=B3/B7*B8
=C11
=C11/2
=B3/B7*B8
=B3/B10
=B10/B3*B7
=B3/C11
=C11/B3*B7
2005 Thomson/South-Western
15
2005 Thomson/South-Western
C
89.44
75.00
-16.15
$447.21
$447.21
$894.43
$375.00
$533.33
$908.33
1.55
89.44
44.72
100
75
37.5
100
5.59
53.67
6.67
45.00
16
2005 Thomson/South-Western
17
2005 Thomson/South-Western
18
Assumptions
Demand occurs at a constant rate of D
items per year.
Production rate is P items per year (and P
> D ).
Set-up cost: $Co per run.
Holding cost: $Ch per item in inventory per
year.
Purchase cost per unit is constant (no
quantity discount).
Set-up time (lead time) is constant.
Planned shortages are not permitted.
2005 Thomson/South-Western
19
Formulas
D/Q *
Q */D
[(1/2)(1-D/P )Q *Ch] +
[DCo/Q *]
(holding + ordering)
2005 Thomson/South-Western
20
2005 Thomson/South-Western
21
TC
2005 Thomson/South-Western
22
2(1,000,000)(5,000) /[(.1)(1 -
346,410
2.89
2005 Thomson/South-Western
23
2005 Thomson/South-Western
24
105.2
2005 Thomson/South-Western
days between
25
Maximum Inventory
Current Policy:
Maximum inventory = (1-D/P )Q *
= (1-1/6)100,000
83,333
Optimal Policy:
Maximum inventory = (1-1/6)346,410 =
288,675
Machine Utilization
Machine is producing D/P =
time.
2005 Thomson/South-Western
1/6
of the
26
2005 Thomson/South-Western
27
Assumptions
Demand occurs at a constant rate of D
items/year.
Ordering cost: $Co per order.
Holding cost: $Ch per item in inventory per year.
year.
Purchase cost per unit is constant (no qnty.
discount).
Set-up time (lead time) is constant.
Planned shortages are permitted (backordered
demand units are withdrawn from a replenishment
order when it is delivered).
2005 Thomson/South-Western
28
Formulas
Optimal order quantity:
Q * = 2DCo/Ch
(Ch+Cb )/Cb
Maximum number of backorders:
S * = Q *(Ch/(Ch+Cb))
29
2005 Thomson/South-Western
30
2005 Thomson/South-Western
31
2DCo/Ch
(Ch + Cb)/Cb
2(96)(120)/255 x
(255+2080)/2080
= 10.07 10
S * = Q *(Ch/(Ch+Cb))
= 10(255/(255+2080)) = 1.09 1
2005 Thomson/South-Western
32
2005 Thomson/South-Western
33
2005 Thomson/South-Western
34
2005 Thomson/South-Western
36
Assumptions
Demand occurs at a constant rate of D
items/year.
Ordering Cost is $Co per order.
Holding Cost is $Ch = $CiI per item in
inventory per year (note holding cost is
based on the cost of the item, Ci).
Purchase Cost is $C1 per item if the quantity
ordered is between 0 and x1, $C2 if the order
quantity is between x1 and x2 , etc.
Delivery time (lead time) is constant.
Planned shortages are not permitted.
2005 Thomson/South-Western
37
Formulas
2005 Thomson/South-Western
38
2005 Thomson/South-Western
39
2005 Thomson/South-Western
40
2005 Thomson/South-Western
41
2005 Thomson/South-Western
42
2005 Thomson/South-Western
43
2005 Thomson/South-Western
44
2005 Thomson/South-Western
45